Obama's budget projects soaring deficit

US President Barack Obama's proposed budget, unveiled on Thursday, anticipates an economic contraction of 1.2% in 2009, though his projections were more optimistic than those of the Congressional Budget Office.

AFP - President Barack Obama launched a bid Thursday to transform the US political landscape, with a 3.55-trillion-dollar budget mapping out the sweeping scale of his administration's ambitions.

The document handed to Congress bristled with spending on healthcare, climate change, the military and education, included a rosy prediction of a return to growth next year and raised taxes on the wealthiest Americans.

"This budget is an honest accounting of where we are and where we intend to go," Obama said at the White House, while warning that the size of the deficit required tough decisions on spending priorities.

"There are some hard choices that lie ahead," said the president, who is responding to the economic crisis by leading the biggest government intervention in American life in decades.

"We need to be honest with ourselves about what costs are being racked up, because that's how we'll come to grips with the hard choices that lie ahead."

The budget for 2010 assumes major cost savings from the planned drawdown of the US garrison in Iraq, which currently costs 170 billion dollars a year.

The budget forecasts a 1.750 trillion dollar deficit in fiscal 2009, but foresees that figure falling to 1.171 trillion dollars in 2010.

The plan sees the deficit soaring to the largest percentage of gross domestic product since World War II, but the president touted a string of cost savings designed to lay new foundations for the US economy.

It also includes an optimistic forecast that the struggling US economy will post robust growth next year, projecting a 1.2 percent contraction in calendar 2009 but an expansion of 3.2 percent in 2010.

Obama's budget chief Peter Orszag dismissed suggestions that the growth forecast was too rosy, saying "We're not raising the price before the sale."

In a foretaste of fierce battles looming in Congress, John Boehner, the top Republican in the House of Representatives declared "the era of big government is back" and that Democrats want taxpayers to pay for it.

With a few exceptions, Republicans opposed Obama's 787-billion-dollar economic stimulus plan, and were set to do the same on the budget.

The 2010 spending of 3.552 trillion dollars is down from the current year's total of 3.938 trillion dollars.

The projected spending would include around 200 billion dollars to fight wars in Iraq and Afghanistan over the next 18 months, and a huge 634-billion-dollar, 10-year fund to pay for healthcare reform, a key plank of Obama's election campaign.

Overall defense spending for 2010 is to reach 663.7 billion dollars and includes the costs of wars in Iraq and Afghanistan, an increase of roughly 1.5 percent.

Obama also used the budget to signal his determination to join global efforts to combat climate change and pursue alternative energy solutions.

"We'll be working with Congress on legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy," he said.

"To support this effort, we'll invest 15 billion dollars a year for 10 years to develop technologies like wind power and solar power, and to build more efficient cars and trucks right here in America."

Obama has also asked for 250 billion dollars to be set aside for potential additional bailouts of the US financial industry, on top of the 700 billion dollars already committed to that effort.

The Obama administration currently has no plans to use the extra bailout money, but wants the funds included as an "overly conservative" placeholder, a senior administration official said.

Obama also fulfilled a campaign pledge to raise taxes on Americans earning more than 250,000 dollars a year from 35 percent to just under 40 percent, yielding some two trillion dollars over ten years.

Orszag earlier estimated that a cap-and-trade scheme to battle climate change could generate 112 billion dollars by 2012, and up to 300 billion dollars a year by 2020.

Obama's request includes 75.5 billion dollars for 2009 to send more US troops to Afghanistan, officials said.

The president will also request 130 billion dollars for Iraq and Afghanistan and set operations in those countries at 50 billion dollars annually over the next several years, they said.